The insured sustained damage to business premises following a hurricane. (Photo: Shutterstock)
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Editor's Note: This week's question involves an insured with business income coverage and an endorsement for Utility Services-Time Element on their policy. Following Hurricane Maria, the insured was able to resume operations within a short period of time with the use of a power generator. The question relates to how business income coverage applies to the waiting period for the utility services, including when that waiting period ends, and when the business income coverage ends.
Question: Our insured's premises suffered direct physical loss caused by Hurricane Maria, which suspended operations until repairs were completed 15 days after the date of loss. On day 16, the insured resumed operations using a power generator because damage to the overhead transmission power lines cut electricity to premises.
Ninty days after the date of direct physical loss, the electricity was restored to the insured's premises when the overhead transmission lines were repaired.
The parties agree that the period of restoration or coverage for extra expense begins immediately after the time of direct physical loss and ends 90 days after the date of direct physical loss when electricity was restored to the premises (the insured used a power generator until the power was restored on day 90).
However, with regard to the business income period of restoration or coverage, the parties are not in agreement. One party argues that the business income calculation should only include the period that begins 72 hours after the time of direct physical loss and end on day 15 when the insured resumed operations using a power generator.
The other party argues that since the insured's policy includes the Utility Services-Time Element form, the business income calculation should include the period that begins 72 hours after the time of direct physical loss and end on day 90 when the overhead transmission lines were repaired, and electricity was restored (we are assuming the extended business income does not apply to this loss).
— Puerto Rico Subscriber
Analysis: Damage to property, especially commercial ones, often includes losses beyond just the property. When a business sustains physical damage, it can also lose income because it cannot sell its goods or services due to loss of use of the property during repairs. Some endorsements provide coverage for the loss of income and extra expenses.
Power losses are often part of a loss to physical property, which can also shut down the business and add to the damages. Endorsements for this exist, as well. One of the more difficult things to understand is how all these forms work together to provide coverage for the insured. There are often waiting periods and deductibles that affect when the coverage begins and ends, and exactly what coverage is provided.
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